Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249598 
Year of Publication: 
2022
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 2/2022
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We construct a model of innovation incorporating R&D externalities, R&D participation, financial market imperfections, and application and allocation of R&D subsidies, estimate it using Finnish R&D project level data and conduct a welfare analysis. The intensive, not the extensive R&D margin is important. Financial market imperfections are small. Tax credits and subsidies do not reach first best R&D but increase R&D 29-47% compared to laissez-faire. Welfare effects are small: Tax credits increase welfare 1%; subsidies reduce welfare once application costs are taken into accout. In terms of fiscal cost, tax credits are 90% more expensive than R&D subsidies.
Subjects: 
R&D subsidies
R&D tax credits
extensive and intensive margin
financial market imperfections
welfare
counterfactual
economic growth
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-396-6
Document Type: 
Working Paper

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